Buoyant export growth, driven in large part by China, is leading a recovery from the 2003 downturn, despite still-sluggish domestic demand. A rebound in private consumption, which has declined following the end of the household credit boom, is expected to lift economic growth to the 5 to 6 per cent range in 2004 and 2005. The major risk to this export-led expansion would be a weakening in world trade growth before domestic demand revives. The top policy priority is to make further progress in the reform agenda, notably in improving the functioning of the labour market, addressing the problems in the non-bank financial sector and enhancing transparency in the corporate sector. As the recovery accelerates, the extent to which the short-term policy interest rate would need to be raised from its current record-low level will depend on how the exchange rate evolves...